Morning Market Update

Bulls Looking to Ride After Yesterday’s Late-day Slide

The global equity markets are mostly higher, showing some resiliency in the face of yesterday’s disappointing final hour slide in the US on the debt rating downgrade by Moody’s of Greece, and in the face of a much worse-than-forecasted reading on German investor confidence. Additionally, the bulls are shrugging off a large profit miss by retailer Best Buy Co Inc, which also came up short of the Street’s revenue forecast, but it reiterated its full-year outlook. In other equity news, News Corp announced an offer to purchase the shares it does not already own of British Sky Broadcasting Group Plc for about $11.5 billion, but the offer was rejected. Treasuries are slightly lower in morning trading, showing little reaction to a smaller-than-expected increase in a gauge of manufacturing activity in New York, and a smaller-than-forecasted drop in import prices. Overseas, Asia finished mixed after the Bank of Japan left its benchmark interest rate unchanged and announced a $33 billion loan encouragement facility to help strengthen the financial environment, while European markets have erased early losses and are higher.

As of 8:49 a.m. ET, the September S&P 500 Index Globex future is 8 points above fair value, the Nasdaq 100 Index is 10 points above fair value, and the DJIA is 66 points above fair value. Crude oil is up $0.78 at $75.90 per barrel, and the Bloomberg gold spot price is up $4.05 at $1,225.30 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.4% at 86.35.

Best Buy Co. Inc. (BBY $41) reported 1Q EPS ex-items of $0.36, compared to the $0.50 analysts surveyed by Reuters had expected, with revenues increasing about 7% year-over-year (y/y) to $10.8 billion, below the $10.9 billion that the Street had expected. BBY’s CEO said there were many positive indicators in 1Q, highlighted by the “excellent” performance of its mobile segment, and these indicators, coupled with model changes it is making, give him confidence in the company’s ability to achieve its financial goals this year. Also, the company said, “While our financial results in the fiscal first quarter were below expectations, we remain confident that the strategic investments we are making” will support increased margin expansion during the fiscal year. BBY reiterated its full-year guidance.

News Corp. (NWS $15) announced that it has made an offer of 7.8 billion British pounds ($11.5 billion) to acquire the 61% stake in British Sky Broadcasting Group Plc (BSYBY $35) that it does not already own. BSYBY has rejected the offer, saying that it undervalues the company.

NY Manufacturing improves less than expected, Import prices fall less than forecasted

The Empire Manufacturing Index, a measure of manufacturing in the New York region, ticked higher in June to a level of 19.57, below the estimates of economists surveyed by Bloomberg, which expected an increase to 20.00, from the previous month’s level of 19.11. However, the index remains above the level of zero that suggests conditions are neither contracting nor expanding. The report is the first major piece of data looking at manufacturing conditions in June, and later this week, the Philly Fed Manufacturing Index will be released, expected to decline from 21.4 in May to 20.0 in the current month, providing further insight into the health of the sector (economic calendar).

Elsewhere, the Import Price Index declined 0.6% month-over-month (m/m) for May, compared to the expectation of economists, which called for the index to drop by 1.2%. Year-over-year, import prices are higher by 8.6%, versus the 7.9% forecast of economists. Treasuries are modestly lower, showing little initial reaction to the Empire Manufacturing and import price reports

Meanwhile, the second-half of today’s trading session will bring the release of the NAHB Housing Market Index, and the gauge of homebuilder sentiment is expected to move from 22 in May to 21 in June.

Europe showing resiliency in face of Greece downgrade and German data

Stocks in Europe have overcome early losses and are higher in afternoon action, showing some resiliency in the face of yesterday’s late-day downgrade of Greece’s government bond ratings by Moody’s Investors Service by four notches to a level depicting junk status. Also, the equity markets are shrugging of sharp deterioration in a reading of investor confidence in Germany—Europe’s largest economy. The German ZEW Survey of Economic Sentiment fell from 45.8 in May to 28.7 in June, well below the 42.0 that economists surveyed by Bloomberg had expected. The reading depicts investor and analyst outlook on conditions six months ahead and it suggests that the euro-area debt crisis has severely impacted sentiment.

Financials have rebounded to help the afternoon advance, with shares of Societe Generale (SCGLY $8) moving higher after France’s second-largest bank per Bloomberg issued a favorable profit outlook, while UBS AG (UBS $13) is gaining ground on a positive government vote, which could help resolve the two-year tax evasion conflict with the US. Meanwhile, the surge in the shares of British Sky Broadcasting on the News Corp offer to acquire the rest of the firm is also aiding the advance in Europe.

In other economic news, UK consumer prices rose less than economists forecasted on a month-over-month (m/m) basis in May, and a separate report showed housing prices in the UK improved by a larger amount than forecasted. Also, euro-zone employment came in unchanged quarter-over-quarter (q/q) in 1Q, and the euro-zone trade surplus shrank more than expected.

The UK FTSE 100 Index is 0.5% higher, France’s CAC-40 Index is up 0.8%, and Germany’s DAX Index is advancing 0.6%, while Greece’s Athex Composite Index is decreasing 0.9%.

Asia mostly flat following late-day slide in the US

Stocks in Asia finished near the flatline as the recent upward momentum stalled on the heels of the final hour slide in the US, which came courtesy of the late-day downgrade of Greece’s government bond ratings by Moody’s. Japan’s Nikkei 225 and Hong Kong’s Hang Seng Indexes both ticked 0.1% higher, while Australia’s S&P/ASX 200 and South Korea’s Kospi Indexes both finished flat in a cautious day in the region. However, there were some economic events in the area that are worth mentioning, beginning with the Bank of Japan leaving its benchmark interest rate at 0.1%, saying, “Japan’s economy shows further signs of a moderate recovery,” with exports and production increasing and business fixed investment showing signs of picking up. Also, the BoJ noted that the employment and income situation has remained severe, but the degree of severity “has eased somewhat.” Moreover, the BoJ announced that it will aim to maintain the “extremely accommodative financial environment,” and also provide up to 3 trillion yen ($33 billion) in a fund-provisioning measure to “support strengthening the foundations for economic growth.” The BoJ’s measure will supply long-term funds at a low interest rate to financial institutions to encourage lending and investment.

In other central bank news, the Reserve Bank of Australia released the minutes from its most recent monetary policy meeting on June 1st, in which it left its benchmark interest rate unchanged at 4.5%, after increasing rates six times since October. The RBA noted that the situation in Europe had “deteriorated significantly,” and previous interest rate hikes have given it flexibility to determine how the euro-area debt crisis will impact the global economy, as well as assess the outlook for inflation.

Elsewhere, Taiwan’s Taiex Index rose 0.9% and India’s BSE Sensex 30 Index advanced 0.4%. China’s Shanghai Composite remained closed, but the US Conference Board said on its website today that its Leading Economic Index (LEI) for China increased sharply again due to continued upward momentum for the real estate sector.